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Note the good news

Every time I interview Australia’s academic bear — Associate Professor Steve Keen from the University of Western Sydney, who also writes for this website —  I always need a positive booster to remind me that the Australian economy is an out-performer and looks poised to beat the global worst case scenarios put forward by other bearish or negative economists.

To put Keen in perspective, he's the guy who predicted that the rise of debt around the world and here would rattle stock markets, paving the way of a damn, great recession. He has predicted a 40 per cent slump in real estate prices in Australia, but this looks less likely. He says it will happen over the next 10 to 15 years but he could be pushing up daisies before he is proved right or wrong!

I also believe he has underestimated the ability of the world to grow out of the emerging economies as well as the fact that we could gradually repair our finances without depriving the world economy of enough demand to keep business profits and stock markets heading up.

Repercussions of the GFC

However, I do believe the growth of profits and share prices will be hamstrung because of the aftermath of the global financial crisis, but it won’t be as bad as doomsday merchants will have it. 

Expanding economy

So let’s do a recap on the good news first and then for objectivity reasons lets run our eye over the bad, no, not so good news!

The best news was that our economy expanded by 0.4 per cent in the March quarter after contracting by a revised 0.6 per cent in the December quarter, and it meant we dodged an official recession. This was a real confidence booster for consumers and business owners who were wondering when the worst of this economic downturn would hit.

After this reading, CommSec came out and predicted the economy would probably grow by only 0.6 per cent this financial year, but 2.1 per cent growth for 2009-10 and then a big 4.1 per cent growth for 2010-11.

Read the data

The month of May kept the merriment coming with retail sales rising by one per cent after going up 0.3 per cent in April. In annual terms retail sales were up 7.1 per cent on a year ago and this is the biggest annual increase since December 2007.

May’s building approvals disappointed falling by 12.5 per cent but this had followed a 19.9 per cent gain in the previous three months. There was a 39.5 per cent fall in apartment approvals behind the decline, but BT’s Chris Caton said this was a one-off and the outlook for this kind of building was bullish.

To the factories and the Performance of Manufacturing Index (PMI) rose by 0.9 points to 38.4 in June and that was an eight-month high. At the same time, our all-important customer, China, announced its PMI and registered a 13-month high.

On the real estate front, the RP Data-Rismark Hedonic Australian Home Value Index rose by 0.9 per cent in May and by 1.6 per cent over the year. In the first five months of 2009, Australian dwelling prices were up 3.9 per cent, translating to a 9.4 per cent annual rate with Sydney and Melbourne dwelling prices hitting record highs in May. Meanwhile, the number of new housing loans is at 16-month highs rising by 2.2 per cent in May.

Businesses more confident

To business confidence in May, and the NAB measure posted its biggest monthly gain in eight years. It was helped by a positive global share market and promises of big infrastructure spending.

The monthly business survey showed business confidence rose 12 index points in May to minus-two index points, the largest one-month jump since May of 2001. The index went to the highest level since February of 2008.

This was then followed up by the June reading which took business confidence positive for the first time in seven months, while business conditions rose 12.2 points but still was slightly in negative territory.

This survey also brought the best profitability reading in 12 months and the biggest improvement in employment in 12 years!

Consumer confidence boost

Meanwhile, the consumer has got on with the job with the Westpac-Melbourne Institute consumer sentiment index recording the biggest back to back gain since records started 36 years ago. The index rose by 9.3 per cent in July, which is a 19-month high.

And even the rev-heads are contributing with the June figures showing 102,847 new cars sold. CommSec says this was the third biggest month on record.

This has been helped by the Rudd Government tax rebate for business and lower interest rates but this demand couldn’t be arriving at a better time to keep the economy in a positive groove.

Positive data from China

For those who want more positive China data, here goes.

Retail sales in May rose to an annual rate of 15.2 per cent annual rate and industrial production expanded at 8.9 per cent. Chinese banks lent a record 5.83 trillion Yuan in the first five months of 2009 – more than the minimum yearly target of 5 trillion. And finally, CommSec reports that China’s urban fixed asset investment for spending on roads, power plants, etc. grew at annual rate of 32.9 per cent in the first five months of the year. This was the largest increase recorded in the last five years.

The bad news?

Regrettably, I have run out of room for the bad news, so that will have to wait for another day. I will try to remember to do that, not!  

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, July 20, 2009

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